CHAPTER 14

MULTIPLE CHOICES - COMPUTATIONAL

14-1:

d
Price paid (8,000 shares x P30)
Contingent consideration

P240,000
5,

Acquisition cost

P245,000

000
14-2:

Purchase price
Less: Fair value of net assets acquired
180,000
Goodwill
14-3:

P250,000
P70,000

c
Purchase price (100,000 shares x P36)

P3,600,0

00
Contingent consideration

120

,000
Total costs

P3,720,0

00
14-4:

d
Price paid (600,000 shares x P50)

P30,000,

000
Less: goodwill recorded

6,12

0,000
Fair value of net assets acquired

P23,880,

Capital stock issued (600,000 shares x P10)

P 6,000

000
,000
APIC (600,000 shares xP40) - P30,000

23,970

,000
Increase in CJ's equity

P29,970,

000
14-5:

a
Price paid

P2,550,0

00
Less: Fair value of net assets acquired
Current assets
Plant assets
Liabilities

P1,100,000
2,200,000
(
300,000)

3,000,

000
Income from acquisition
APIC: [(P2,550,000 - P1,200,000) - P15,000]
00

P( 450,000)
P1,335,0

14-6:

a (at fair value at date of acquisition)

14-7:

d
Abel net income, January to December (P80,000 + P1,320,000)

P1,400,0

00
Cain net income, April to December

400

,000
Total net income

P1,800,0

00
14-8:

a
Price paid

800,

000
Less: Fair value of net assets acquired
Cash
Inventory
Property, plant and equipment
Liabilities

P 160,000
380,000
1,120,000
( 360,000)

1,300,

000
Income from acquisition
14-9

P (500,000)

Price paid
P 700,000
Less: Fair value of net assets acquired (P600,000 - P188,000)
412,000
Goodwill
P 288,000
Avon's assets
2,000,000
Bell's assets at fair value
600,000
Total assets
P2,888,000
14-10: c
Debit to expenses:
Broker's fee

50,

000
Pre-acquisition audit fee
40,000
General administrative costs

15

,000
Legal fees for business combination

32

,000
Other acquisition costs
6,000
Total

P 143,00

Debit to APIC
Audit fee for SEC registration of stock issue

46,

51,

000
SEC registration fee for stock issue
5,000
Total
000

14-11: d
Consideration given:
Cash
P270,000
Stocks issued at fair value
0
Total
Less: fair value of net assets acquired:
Cash
Inventories
Other current assets
Plant assets (net)
Current liabilities
Other liabilities
270,000
Goodwill

330,00
P600,000
P40,000
100,000
20,000
180,000
(30,000)
(40,000)

Total assets after combination:

Total assets before combination

P330,000
P

760,

000
Cash paid (P270,000 + P70,000)

(340

,000)
Registration and issuance costs of shares issued
( 30,000)
Polo's assets after combination

390,

000
Assets acquired at fair values

340

Goodwill

330

,000
,000
Total assets after combination

P1,060,0

00
14-12: d
Price paid

P1,400,0

00
Less: Fair value net assets acquired

1,350,

000
Goodwill

50,

000
14-13: a
Price paid
Less: Fair value of net identifiable assets acquired:
Current assets
P 80,000
Non-current assets
120,000
Liabilities
( 20,000)
0

P160,000

180,00

Income from acquisition

P(20,000)

Non- current assets

P120,000

14-14: c
Price paid
Less: Fair value of identifiable assets acquired:
Cash
P 60,000
Merchandise inventory
142,500
Plant assets (net)
420,000
Liabilities
(135,000)

P600,000

Goodwill

P112,500

487,50

0
14-15: b
Price paid

P1,000,0

00
Less: Fair value of identifiable assets acquired
800,000
Goodwill

200,

000
MM's net assets at book value

1,200,

PP's net assets at fair value

800

000
,000
Total assets after combination

P2,200,0

00
14-16: c, Under the acquisition method assets are recorded at their fair value
s (P225.000)
14-17: d
Capital stock issued at par (10,000 shares x P10)
P100,000
APIC (10,000 shares x P40)
0
Total

400,00
P500,000

14-18: d, net assets are recorded at their fair values.

14-19: a
Income from acquisition
Fair value of net assets acquired

P 100,000
P2,000,000 - P400,000)

1,600,000
Price paid
000

1,500,

Shares to be issued (P1,500,000 P40)

37,500 s

hares
14-20: d
Goodwill
Fair value of net assets acquired
1,600,000

200,000

Price paid

P1,800,0

Shares to be issued (P1,800,000 P40)

45,000 s

00
hares
14-21: c
Total assets of Pablo before acquisition at book value

700,000
Total assets acquired from Siso at fair value (100,000 +440,000)
540,000
Total assets

1,240,0

00
Less: cash paid (15,000 + 25,000)

40

,000
Total assets after cash payment
1,200,000
Goodwill to be recognized (Sched 1)
000
Total assets after combination
00

195,
1,395,0

Sched 1: Consideration given:

Purchase price (30,000 shares x P20) 600,000
Contingent consideration
75,00
0
675,000
Fair value of net assets acquired (540,000 - 60,000)
480,000
Goodwill
195,000
14-22: a
Capital stock issued at par (P500,000 + P300,000)

00,000
APIC (50,000 + 300,000) - 15,000

335,0

00
Retained earnings (P100,000 - 25,000)

75,

000
Stockholders equity after acquisition
1,210,000
14-23: a
B Company

Company
Consideration given
Less: fair value of net assets acquired

P4,400,000
4,150,000

P638,000
370,00

Goodwill

P268,000

0
Total goodwill recorded (250,000 + 268,000)

250,000

518,00

0
14-24: a
A Company
0
B Company
0

5,250,00
6,800,00

C Company

900,0

00
Cash paid for acquisition costs (P20,000 + P10,000)

(30,

000)
Goodwill (see 14-23)

518,0

Total assets after combination

13,43

00
8,000
14-25: a
Stockholders equity before acquisition
P1,300,000
Capital stock issued at par (229,000 shares x P10)
000
Additional paid-in-capital [(229,000 x 12) - 10,000]
000
Other acquisition cost (reduction from retained earnings)

2,290,
2,738,

(20,000)
Stockholders equity after acquisition
6,308,000
14-26: 1. a
Equipment:
P180,000/5 yrs. =
Building:
P550,000/20 yrs. =
Total depreciation
2. b
Price paid
Less fair value of net assets acquired:
Current assets
Land
Equipment
Building
Current liabilities

P36,000
27,500
P63,500
P900,000
P100,000
50,000
180,000
550,000
(150,000)

730,00

0
Goodwill

P170,000

14-27: b
Price paid
Final fair value of net assets
Goodwill

P32 M
28 M
P 4 M

PROBLEMS
Problem 14-1
1.

Books of Big Corporation

(a) To record acquisition of net assets of Small:
Accounts receivable
Inventories
Property, plant and equipment
Current liabilities

50,000
Income from acquisition
10,000
Cash
500,000

120,000
140,000
300,000

(b)

To record acquisition-related costs:

Acquisition expense
Cash

5,000

5,000
Computation of Income from Acquisition:
Price paid
P500,000
Less: Fair value of net identifiable assets acquired:
Accounts receivable
P120,000
Inventories
140,000
Property, plant and equipment
300,000
Current liabilities
( 50,000)
510,000
Income from acquisition

P( 10,00

0)
2.

Books of Small Corporation

(a) To record the sale of net assets to Big:
Cash
Current liabilities
Accounts receivable

500,000
50,000

120,000
Inventories
100,000
Property, plant and equipment
280,000
Retained earnings
50,000
(b) To record liquidation of the corporation:
Common stock
Retained earnings
Cash

200,000
300,000

500,000

Problem 14-2
(1) To record the acquisition of net assets:
Cash
Inventory
Building and equipment - net
Patent
Accounts payable
30,000
Cash
565,000

50,000
150,000
300,000
200,000

Income from acquisition

105,000
Computation of Income from Acquisition
Price paid
Less: Fair value of net identifiable assets acquired
Total assets
P700,000
Accounts payable
( 30,000)

P565,000
670,00

0
Income from acquisition

P(105,000)

(2) To record acquisition-related costs:

Acquisition expenses
Cash
5,000

5,000

Problem 14-3
(1) To record acquisition of net assets:
Cash and receivables
Inventory
Building and equipment
Goodwill
Accounts payable
50,000
Common stock, P10 par value
60,000
Additional paid-in capital
480,000

50,000
200,000
300,000
40,000

Computation of Goodwill
Price paid (6,000 shares x P90)
Less: fair value of net identifiable assets acquired
Total assets
P550,000
Accounts payable
( 50,000)

P540,000
500,00

0
Goodwill

P 40,00

0
(2)

To record acquisition-related costs:

Additional paid-in capital
Acquisition expenses
Cash
40,000

25,000
15,000

Problem 14-4
(1) To record acquisition of net assets:
Cash
Accounts receivable
Inventory
Land
Building and equipment
Bond discount

60,000
100,000
115,000
70,000
350,000
20,000

Goodwill

95,000
Accounts payable

10,000
Bonds payable
200,000
Common stock, P10 par value
120,000
Additional paid-in capital
480,000
Computation of Goodwill
Purchase price (12,000 shares x P50)
P600,000
Less: Fair value of net identifiable assets acquired
Total assets
P695,000
Total liabilities
( 190,000)
505,000
Goodwill
P 95,00
0
(2) To record acquisition-related costs:
Additional paid in capital
Acquisition expense
Cash
28,000

18,000
10,000

Problem 14-5
1.
2.
0
3.
0
4.
5.
00
6.
7.
0

Common stock:: P200,000 + (8,000 shares x P10)

Cash and receivables: P150,000 + P40,000

P280,000
190,00

Land: P100,000 + P85,000

185,00

Building and equipment - net: P300,000 + P230,000

Goodwill: (8,000 shares x P50) - P355,000

530,000

APIC: P20,000 + (8,000 shares x P40)

Retained earnings

340,000

Problem 14-6
Combined Statement of Financial Position
After acquisition
Based on P40/share
P20/share

Based on

45,0
330,00

Cash and receivables

P
350,000
P
350,000
Inventory
645,000
645,000
Building and equipment
1,050,000
1,050,000
Accumulated depreciation
(200,000)
(200,000)
Goodwill
180,000
Total assets
P2,025,000
P1,845,000

Accounts payable
P
140,000
P
140,000
Bonds payable
485,000
485,000
Common stock P10 Par value
450,000
450,000
Additional paid-in capital
550,000
250,000
Retained earnings(including income from acquisition)
400,000
520,000
Total liabilities and stockholders' equity
P2,025,000
P1,845,000

Computation of Goodwill - Based on P40 per share:

Price paid (15,000 shares x P40)
P600,000
Less: Fair value of net identifiable assets (P545,000 - P125,000)
420,000
Goodwill
Computation of Income from Acquisition - Based on P20 per share:
Price paid (15,000 shares x P20)
Less: Fair value of net identifiable assets
0
Income from acquisition (added to retained earnings of Red)
,000)
Problem 14-7
(a)

Combined Statement of Financial Position

January 1, 2011

P180,000
P300,000
420,00
P(120

ASSETS
Cash and receivables
0
Inventory
00
Land
00
Plant and equipment
Less: Accumulated depreciation
Goodwill
000
Total assets
0

P 110,00
142,0
115,0
P540,000
150,000

390,000
13,
P 770,00

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
0
Capital stock, P20 par value
00
Capital in excess of par
216,000
Retained earnings
00
Total liabilities and stockholders' equity
P 770,000
Problem 14-7, continued:
Computation of Goodwill
Price paid (700 shares x P300)
Less: Fair value of net identifiable assets acquired
(P217,000 - P20,000)
0
Goodwill
(b)

Stockholders' Equity section

(1)

With 1,100 shares issued

Capital stock: P200,000 + (1,100 shares x P20)

Capital in excess of par: P20,000 + (1,100 x P280)
0
Retained earnings
0
Total
(2)

214,0

240,0

P210,000
197,00
P 13,000

P222,000
328,00
240,00
P790,000

With 1,800 shares issued

Capital stock: P200,000 + (1,800 shares x P20)

Capital in excess of par: P20,000 + (1,800 x P280)
Retained earnings
Total
(3)

P 100,00

P 236,000
524,000
240,000
P1,000,000

With 3,000 shares issued

Capital stock: P200,000 + (3,000 shares x P20)

Capital in excess of par: P20,000 + (3,000 x P280)
Retained earnings
Total
0

P260,000
860,000
240,000
P1,360,00

Problem 14-8
2010 (a)
2011
2012
Revenue
P1,400,000
P1,800,000 (b)
P2,100,000
Net income
500,000
545,000 (c)
700,000
Earnings per share
P 5.00
P 4.84 (d)
P 5.60 (e)

(a)
(b)
(c)
(d)
(e)

Separate figures for Dollar Transport only.

P2,000,000 - P200,000
P620,000 - P55,000
P545,000 / 112,000 shares (100,000 + 125,000) 2
P700,000 / 125 shares

Problem 14-9
a.

Books of Peter Industries:

(1) To record acquisition of net assets:
Cash
Accounts receivable
Inventory
Long-term investments
Land
Rolling stock
Plant and equipment
Patents
Special licenses
Discount on equipment trust notes
Discount on debentures
Goodwill
Allowance for bad debts

6,500

28,000
258,000
395,000
175,000
100,000
63,000
2,500,000
500,000
100,000
5,000
50,000
109,700

Current payables
137,200
Mortgage payables
500,000
Premium on mortgage payable
20,000
Equipment trust notes
100,000
Debenture payable
1,000,000
Common stock
180,000
APIC - common

2,340

,000
Computation of Goodwill
Price paid (180,000 shares x P14)

P2,520,0

00
Less: fair value of net identifiable assets acquired
Total assets
P4,112,500
Total liabilities
(1,702,200)
2,410,300
Goodwill
P 109,
700
(2) To record acquisition-related costs:
Additional paid in capital
Acquisition expenses
Cash
42,000

42,000
135,000

Problem 14-9, continued:

b.
Books of HCC:
Common stock
APIC - Common
Treasury stock
12,000
To record retirement of treasury stock.
P7,500 = P5 x 1,500 shares
P4,500 = P12,000 - P7,500
Investment in stock - Peter
Allowance for bad debts
Accumulated depreciation
Current payable
Mortgage payable

7,500
4,500

2,520,000
6,500
614,000
137,200
500,000

Equipment trust notes

Debentures payable
Discount on bonds payable
40,000
Cash
28,000
Accounts receivable
258,000
Inventory
381,000
Long-term investments
150,000
Land
55,000
Rolling stock
130,000
Plant and equipment
2,425,000
Patents
125,000
Special licenses

100,000
1,000,000

95,800
Gain on sale of assets and liabilities
1,189,900
To record sale of assets and liabilities to Peter.
Common stock
592,500
APIC - Common
495,500
APIC - Retirement of preferred
22,000
Retained earnings
1,410,000
Investment in stock - Peter
2,520,000
To record retirement of HCC stock and distribution of
Peter Industries stock:
P592,500
= P600,000 - P7,500
P495,500
= P500,000 - P4,500
P1,410,000 = P220,000 + P1,189,900

Problem 14-10
a.
000

Increase in capital stock (P240,00 - P200,000)

Increase in APIC (P420,000 - P60,000)

40,
360,

000
Value of shares issued

P 400,0

Total assets after combination

P1,130,0

00
b.

00
Total assets of Subic before combination
650,000
Total fair value of assets of Clark before combination

480,

000
Total liabilities after combination
Total liabilities of Subic before combination

P220,000
(140,000)

( 80

,000)
Fair value of Clark's net assets (including goodwill)

400,

000
Less: Goodwill

5,000
Fair value of Clark's net assets before combination

345,

Par value of common stock after combination

240,

000
c.
000

Par value of common stock before combination

200

,000
Increase in par value

40

,000
Divided by par value per share

P5
Number of shares issued
d.
00

8,000 shares

Value of shares computed in (a)

P 400,0

Number of shares issued computed in (c)

00
Market price per share

50
Problem 14-11
a.

Inventory reported by Son at date of combination was P70,000

(325,000 - P20,000 - P55,000 - P140,000 - P40,000)

b.

Fair value of total assets reported by Son:

Fair value of cash

P 20,000
Fair value of accounts receivable
55,000
Fair value of inventory
110,000
Buildings and equipment reported following purchase
Buildings and equipment reported by Papa
220,000
Fair value of Son's total assets
P405,000
c.

Market value of Son's bond:

Book value reported by Son

P100,000
Bond premium reported following purchase
5,000
Market value of bond

P570,000
(350,000)

8,0

P105,000

Problem 14-11, continued:

d.

Shares issued by Papa Corporation:

Par value of stock following acquisition

P190,000
Par value of stock before acquisition
(120,000)
Increase in par value of shares outstanding
P 70,000
Divide by par value per share
P5
Number of shares issued
00
e.

14,0

Market price per share of stock issued by Papa Corporation

Par value of stock following acquisition
Additional paid-in capital following acquisition

P190,000
262,00

0
P452,000
Par value of stock before acquisition
Additional paid-in capital before acquisition
(130,000)
Market value of shares issued in acquisition
P322,000
Divide by number of shares issued
14,000
Market price per share
P
23.00
f.

P120,000
10,000

Goodwill reported following the business combination:

Market value of shares issued by Papa
P322,000
Fair value of Son's assets
Fair value of Son's liabilities:
Accounts payable
Bond payable
Fair value of liabilities

P405,000
P 30,000
105,000
(135,00

0)
Fair value of Son's net assets
(270,000)
Goodwill recorded in business combination
P 52,000
Goodwill previously on the books of Papa
30,000
Goodwill reported
P 82,000
g.

Retained earnings reported by Son at date of combination was P90,000

(P325,000 - P30,000 - P100,000 - P50,000 - P55,000)

h.

Papa's retained earnings of P120,000 will be reported.

i.

1.

Acquisition expense
Additional paid-in capital
Cash

8,500
6,300

14,800
2.

Goodwill previously computed (no changes)

P82,000

3.
Additional paid-in capital reported following combination
Stock issue costs
Total additional paid-in capital reported
P255,700

P262,000
(6,300)

Problem 14-12
(1)

Liability from contingent consideration

Loss on contingent payment
Cash

80,000
40,000

120,000
2 x (average income of P110,000 - P50,000) = P120,000
(2)

Additional paid in capital

Common stock, P1 par

12,000

12,000
2 x (average income of P110,000 - P50,000) P10
(3)

Additional paid in capital

Common stock, P1 par
100,000
Deficiency (P12 - P8) x 200,000 shares
Divided by fair value per share
Additional shares to be issued

100,000
P800,000
8
100,000 shares

Problem 14-13
(1)

To record the acquisition of net assets of Baby Company:

Current assets
Non-current assets
Goodwill
Current liabilities

256,000
660,000
761,000

162,000
Non-current liabilities
440,000
Estimated liability for contingent consideration
75,000
Cash
400,000
Common stock, (15,000 shares x P4)
60,000
Additional paid in capital (15,000 shares x P36)
540,000
Goodwill computation:
Price paid:
Cash

400,000

Common stock (15,000 shares x P40)

Contingent consideration (P100,000 x 75%)

600,000
7

5,000
Total price paid
1,075,000
Less: Fair value of net assets acquired
Current assets
P 256,000
Non-current assets
660,000
Current liabilities
( 162,000)
Non-current liabilities
( 440,000)
314,000
Goodwill
P 716,000
(2)

Goodwill

15,000
Estimated liability for contingent consideration

15,000
(P100,000 x 90%) - P75,000

Problem 14-14
(1)

Price paid
Less: Fair value of net assets acquired
Goodwill recorded

P500,000
400,000
P100,000

(2 - a) No, because the carrying amount of the net assets of the business is les
s
than the recoverable of the unit.
(2 - b) Yes.
Estimated recoverable amount of the unit

P400,0

00
Carrying value of the unit, excluding goodwill

340,

000
Implied fair value of the goodwill
Existing recorded goodwill (No. 1)
Estimated impairment loss
Entry:
Impairment loss
Goodwill
52

52

60,000
100,000
P(40,000)
40,000
40,000